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New Rules of the Game in Telecommunications in Argentina

 Martín Becerra. Professor at the National University of Quilmes, the University of Buenos Aires, and Independent Researcher at the National Scientific and Technological Research Council (Conicet), Argentina, and

Guillermo Mastrini. Professor at the National University of Quilmes and the University of Buenos Aires, Argentina.*

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On December 16, 2014, Argentina’s Congress approved a new regulatory framework for the telecommunications sector known as Digital Argentina. The bill had been presented by the National Executive Branch in late October. While changes were made that corrected some aspects that were sources of conflict during the legislative process, the structure of the new legislation maintained several of its key characteristics.

The most important new piece of this regulatory framework is that it allows telephone companies to offer audiovisual communication services. This was prohibited under the bidding for telephone companies issued in 1990 when the state-run telephony firm ENTel was privatized and under the Audiovisual Communication Services Law, which was passed in 2009. In addition to this new framework, which favors the creation of a convergent market, the formation of a new regulatory authority was approved and net neutrality and conditions of service and competition for licensees in the sector were established.

The object of regulation of the new law is the communications transportation infrastructure. It covers telephone networks, broad band connections and cable TV. The bill does not regulate content and established “net neutrality,” which means non-discrimination of any type of content.

The new regulatory framework replaces the old telecommunications law that had been in place since 1972 and accompanies the bidding process for the use of the 4G spectrum in mobile telephony. The promise of incorporating convergence in the regulation is new given that the current Audiovisual Communication Services Law was repeatedly criticized for failing to address the digital changes in the audiovisual sector and their relationship to the Internet and telecommunications.

In this way, Argentina’s telecommunications regulatory framework has been substantially modified. During the discussion in Congress, the bill received numerous criticisms from the organizations and companies linked to the sector. While the pro-government side made some changes that improve a few aspects of the original wording, these were insufficient to generate a greater consensus among the political forces, and in the end the bill became law through the votes of the government party. In fact, one could say that if there was any consensus regarding the new regulation, it was the rejection of it by diverse social sectors. The cooperative sector said that its operational capacity was threatened by the entrance of large telephone companies. The social organizations linked to freedom of expression and consumer rights questioned the wording and enormous discretion that it grants to the regulatory authority. Finally, the companies said that the new regulatory framework does not set out clear rules for making the investments necessary for the deployment of 4G. More specifically, cable operators said that they could not compete with the telephone companies and the telephone companies said that they would not benefit from the law if they were forced to share their networks.

In the paragraphs that follow, we address the four most important points of the law, which are listed below, and highlight the challenges that remain for communications policy.

  • Application and oversight authority

The law delegates a great deal of decision-making power on the orientation of the telecommunications policy to the application authority (AFTIC) without mentioning its objectives, missions or functions. While Congress introduced an institutional design that guarantees the presence of various political forces in the direction of AFTICA, the ambiguity of the wording suggests that the specific regulation that the Executive Branch will issue shortly will be more important than the law itself. In this way, telecommunications policy will be subjected to the desires of the government, as the regulations may be changed through presidential decrees. The ambiguity of the law, discretion given to the application authority and regulatory instability were unanimously questioned.

  • Definition of the type of service

The law defines the market segment that handles distribution as a “public service in competition” and the rest of the services (such as mobile telephony) as of “public interest.” During the parliamentary process, the definition of public service was again applied for landline telephony, which was not the case in the original project.

  • Regulations on competition and the creation of linkages between telephony and audiovisual communications

The new law revisits the regulation of the interconnection and inter-operability of networks that was first presented in Decree 764/2000 promoted by Communications Secretary Henoch Aguiar during the administration of Fernando de la Rúa (1999-2001) and then in the Regulations on the Quality of Communications Services managed by Secretary Norberto Berner in 2013 (administration of current President Cristina Fernández de Kirchner). However, the obligation to share transportation networks (which must specify when they involve ducts, posts, etc.) to which the formula of “essential public service in competition” alludes is burdensome to small businesses and cooperatives. Again, Congress partially corrected the original wording and it was established that the entry of telephone companies could be delayed in specific cases. However, the final wording regarding the conditions in which this restriction will be exercised is ambiguous. As the European experience has shown, disaggregating the local network is a necessary step when dealing with conglomerates from dominant positions and vertical integration, but not in the case of small-scale operators. The law also is not precise when it mentions the “significant market position” as a parameter (diffuse in the drafting of the regulation) that would allow the government to adopt greater regulations.

On the other hand, there are no restrictions on the ownership concentration processes that the convergent process may stimulate. Finally, the law insinuates the use of the universal service fund, which is comprised of 1% of the sector’s billing and exceeds $2.4 billion, as a sort of subsidy for smaller stakeholders (small and medium businesses and cooperatives). However, the reach of this measure and its rules are not clear. Furthermore, there is no information on the management model of the fiber optic network built by the government with the “Connected Argentina” program.

  • Net neutrality

The law establishes net neutrality, through it does limit it for reasons of national security. However, the definition of net neutrality offered by the law is narrow and not very precise compared to the Civil Internet Framework approved by Brazil’s Congress in April 2014.

Challenges and Opportunities

The Argentine telecommunications sector presents significant concentration of ownership of telephony and internet services, a significant delay in technological deployment and quality of services, and high rates.

It is worth asking to what degree the new regulatory framework can contribute to solving the aforementioned problems. In order to answer this question, one must consider the ambiguity in the wording and discretion that the law grants to the application authority, which allows one to arrive at both positive and negative answers. This is not encouraging.

In regard to concentration, the policy does not seem to affect the dominant positions of current operators. On the contrary, authorizing the entry of telephony companies into the audiovisual services industry is a wink to Telefónica and Fintech (David Martínez, the new Telecom Argentina shareholder) and Claro (Telmex, Carlos Slim). In any case, we have yet to see the effects that it will have on the cable market, in which the dominant position of the Clarín group may be threatened by economies of scale and crossed subsidies that telephony companies may be able to apply.

This change triggered a cascade of comments on the benefits that it would bring for telecommunications companies, particularly Telefónica. From our perspective, it is not clear whether or not only Telefónica would benefit from the law given that telephony companies are subject to a more competitive environment in their market base. In addition, in the case of Telefónica, the entry into convergent markets would still be difficult. While based on a questionable interpretation of the Law on the Preservation of Cultural Goods and Heritage it maintained ownership of Telefé (the network of nine open television broadcasters), which goes against the Audiovisual Communication Services Law, the Digital Argentina Law sets an obstacle to accessing cable and triple play services. This is due to the fact that the obstacle to the entry of foreign capital into audiovisual services set by Law 26522 is not lifted. Following this reasoning, David Martínez’s investment group Fintech (which is protected by the investment protection agreement with the United States) was much more favored as a shareholder of telecom Argentina than the Telefónica holding.

In regard to quality of service and rates, the new regulatory framework generated greater conditions for competition and could thus encourage market growth in better conditions for users. However, that will depend on the regulations that the government sets out for the law and the commitment to the fulfillment of its objectives as well as the behavior of the business sector, which has been reluctant to make the investments necessary to expand infrastructure and improve the provision of services.

 

* The authors are faculty members at the University of Quilmes, Argentina and members of the OBSERVACOM Editorial Committee.

 

Related links:

Congreso aprobó Ley Argentina Digital

Introducen más cambios en la Ley Argentina Digital

Las Pymes negocian más modificaciones al proyecto Argentina Digital

 

... (en este espacio hay varias líneas de código de programación personalizado)